Sri Lanka vehicle import collapse shows signs of easing

ECONOMYNEXT – A collapse in Sri Lanka’s vehicle imports that came in the wake of a combination of money printing and Nixon shock style trade restrictions in 2018, as the currency collapsed, may be bottoming out, data shows.

New vehicle registrations including motor-cycles have risen to 32,188 units in August, from 31,715 in July, data from Sri Lanka’s vehicle registry compiled by JB Securities, a Colombo-base brokerage shows.

New registrations hit a low of 26,201 in June, to which Easter Sunday blasts in April may also have contributed.

Sri Lanka vehicle registrations picked to around 41,000 units in the first quarter of 2018, from around 36,000 in the last quarter of 2017 but the central bank started to dump liquidity to push down rates and generated two runs on the currency pushing the rupee down from 153 to 182 to the US dollar.

The 2018 instability came on top of a currency crisis in 2015 and 2016, when rates were cut and large volumes of liquidity was released until the rupee fell from 131 to 150 to the US dollar.

The central bank printed money through multiple lender of last resort facilities in April 2018 and in July bought dollars including with a swap with the Treasury and built up excess liquidity generating monetary instability, which was worsened by a political crisis, critics have said.

The monetary instability killed an overall recovery in the economy, critics have said.

Though monetary instability ended in the first quarter of 2019, East Sunday bombs hit the country in April 2019.

Motorcyles, which are bought by the least affluent, grew to 25,508 units in August from 24,739 units in July. Motorcycle registrations fell to a low of 21,416 units in June.

Car registrations slowed to 2,385 units in August from 2,584 in July, but was higher than 1,580 units seen in August.





Imports are key source of revenue for the government. The monetary instability which triggered a credit collapse has also led to a contraction in state revenues.

The central bank has against triggered a bout of currency instability in August and September despite private credit being weak as monetary policy reversed from keeping rates above market by withdrawing liquidity to printing money and depressing overnight rates.

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